The euro is down slightly on Monday, as EUR/USD trades at the key 1.0800 line in North America. With German and French markets closed for Easter Monday, it’s likely to be a quiet day for the euro.
Euro struggling at 2-year low
The euro continues to lose ground, and last week EUR/USD tested a multi-decade support line at 1.0800. If the euro closes below this level, it would be a significantly bearish signal, with 1.06 the next major support level. April has been rough for the euro, which has lost 2.34%. There is plenty not to like about the euro right now, with the Ukraine war casting its shadow on Western Europe and last week’s ECB meeting which disappointed investors.
At the meeting, the central bank essentially gave the market more of the same, maintaining monetary policy and confirming its plan to wind up bond purchases in the third quarter. ECB President Lagarde didn’t provide any hints about hiking rates and moving towards normalisation. What investors see is an ECB that is hesitant to provide any guidance, perhaps wanting to wait for additional economic data. In response, the markets lowered the likelihood of a July rate to 50% and sent the euro lower.
With the Fed in a hawkish mood and the markets expecting a super-size rate hike of 0.50% in May, US Treasury yields are moving higher. Earlier today, the 10-year yield hit 2.87% earlier on Monday, a 3-year high. A further widening of the Euro/US rate differential will push the euro even lower.
The Fed is scrambling to fend off spiralling inflation, which hit 8.5% in March, a 40-year high. With investors looking for clues about how tight the Fed plans to go, comments from senior Fed officials will be carefully scrutinized and could be market-movers. Later today, Fed President James Bullard, one of the most hawkish FOMC members who favours aggressive action from the central bank, will deliver public remarks, and the markets will be all ears.
- 1.0836 is a weak resistance line. Above there is resistance at 1.0913
- There is support at 1.0738 and 1.0661
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